Financial information in decision makingA CIMA case study

Page 2: Financial Accounting

Financial accounting refers to the figures, balances and accounts that a business must produce to demonstrate how the business is performing. In a small business, such as a sole trader or partnership, these accounts may be quite simple. However, they still need to be accurate. This is so that the business owner/s and the tax authorities have clear information about the costs and profits of the business. Once a business becomes a limited company, there is a legal requirement to publish certain figures. These include:

balance sheets, showing a snapshot of what a business owns and owes at a specific point in time

profit and loss account, showing the profit or loss the company has made in a specific period of time

in public limited companies, the cashflow statement, showing where cash has come from and how it has been spent over the past year

Financial accounting tasks

Financial accounts relate to the past performance of the business. They give an important baseline of financial information for managers. However, this information is also publicly available to anyone else, including competitors, suppliers, government and investors. Managers need to be able to see how the business has performed in the past to enable them to look to the future.